USA Needs to Do More to Attract FDI

The USA is lagging behind most major economies in terms of its ability to attract foreign direct investment, according to a new study by UHY Advisors, an international accountancy network.

Over the five years since the global credit crunch, the USA has attracted FDI equivalent to just 6.6 percent of its GDP (USD$1.043trillion in total).On average, countries around the world have attracted FDI worth 17 percent of their GDP in the five years since the credit crunch.

The study looked at net FDI inflow over the last five years in 33 major economies around the world, measuring how successful they have been in attracting FDI compared to their GDP.

The USA also lagged behind neighboring Canada, which attracted FDI equivalent to 11 percent of its GDP (a total of US$200billion).

Winning foreign direct investment provides an important boost to national economies, creating new jobs and tax revenues in the short term, and in the longer term improving productivity by helping to fund capital investment and making domestic companies more competitive.

UHY explains that several countries, such as Ireland and Singapore have been enormously successful in setting up favorable tax and regulatory environments that have encouraged companies to set up regional headquarters there.For example, Yahoo, Google, Apple, PayPal and LinkedIn all have European headquarters in Ireland, and Asian headquarters in Singapore.

UHY explains that the USA imposes relatively high tax rates, which has a potential disincentive to investors.Overseas investors acquiring a U.S. company or asset may also have to comply with complex bureaucratic hoops to gain approval.

Belgium, which took top place in the study, has attracted net FDI equivalent to 91.4 percent of its GDP over the last five years — FDI totaling over US $442 billion.In terms of the absolute amount of FDI received it was behind only the USA (which received over $1 trillion) and China ($563 billion).

Belgium has been particularly innovative in its use of tax legislation to attract international companies. While it has recently phased out the role of so-called ‘co-ordination centres’ for inter-company loans which helped companies to manage their global tax liabilities, it now hopes to differentiate itself by providing tax reliefs for companies that fund their businesses through equity rather than debt.In addition, Belgium has generous tax breaks for R&D and investment in capital goods, as well as fiscal incentives for hiring employees.Belgium’s attractiveness as a European headquarters is reinforced by the access it offers to EU decision makers and its importance as a logistics location.